Stung by investor outrage over its now-aborted plan to buy two firms in which the promoter-family members have stakes, Satyam Computers today went into shareholder-appeasement mode.
The company announced that its board will meet on December 29 to consider buyback of shares. If approved, this will be Satyam’s first buyback since it began operations in 1992. The announcement is being seen by market players as a desperate move to revive confidence among investors who had questioned Satyam’s decision to spend $1.6 billion to acquire two Maytas firms.
The Satyam stock, which crashed by 30 per cent yesterday, gained 7.1 per cent to Rs 169.35 on the Bombay Stock Exchange. There was no respite, though, for Maytas Infra (which Satyam wanted to buy out) and the stock fell by 20 per cent in a rising market.
Satyam currently has around Rs 5,500 crore in cash and equivalents, a part of which will be utilised for the buyback. Though there was no clarity on the extent of the buyback, analysts said in case a buyback is approved by the board, the money that could be used could be 10 per cent of the equity capital plus free reserves. If a buyback is approved by an extra-ordinary general meeting, then a company can buy up to 25 per cent of its equity capital and free reserves.
Analysts, however, are not enthused by the buyback offer. Though everyone agrees that it is an attempt to placate angry investors, who drove the stock down nearly a third on Wednesday, and restore confidence after a stampede of brokerage downgrades even after the deals were called off, most felt that the seriousness and the intent of the management is still in doubt.
“A buyback offer will come as a relief to investors to some extent, but it will take a long time for them to forget this incident,” an analysts said.
Deven Choksey, managing director of K R Choksey Securities, said the move is a damage-control exercise. “It suggests that they have cash and they can do anything with it. The promoters will certainly not use the entire cash for buyback but even if they do, it will go up to only 10 to 15 per cent. This is based on the cash they have and the market capitalisation of the firm.
He predicted, however, that the buyback will receive good response because “everybody is looking at exiting”.
Edelweiss Capital Head of Research Sriram Iyer said the decision “has certain value, but only so much.”An analysis by Business Standard Research Bureau shows that open market buyback of shares have brought little cheer to investors. The market value of 25 out of 34 companies, which have announced buybacks in the last six months, have declined.
Others feel this is just an attempt by the management to buy time. Jahesh Shroff, senior fund manager, SBI Mutual Fund, said, “This is perhaps the first in a series of steps the company needs to take to revive confidence.”
Also read: December 18: Investors force Satyam to call off acquisitions
